What can the city 'claw back' in solar deal?

Last month, I called Mayor Julián Castro to solicit his thoughts on Texas' liberal dispensation of corporate incentives to lure businesses here.

“I do believe that it makes sense to use incentives but to use them wisely and with protections in the contracts,” Castro said. “It's incumbent upon economic development officials to include incentive agreements, claw-back provisions and strong requirements for job creation.”

This week, his emphasis on “claw-back provisions” has gained immediacy — for the city's taxpayers and Castro himself.

Amid a deal to bring 400 megawatts of clean energy to San Antonio, uncertainty has settled around a key member of a consortium selected by CPS Energy to engineer the colossal solar energy project. Express-News reporters Nolan Hicks and Neal Morton uncovered signs this week of financial distress in the South Korean parent company of Nexolon America LLC, which is set to receive hefty incentives from the city to manufacture solar panels at Brooks City-Base on the South Side.

Nexolon Co. Ltd. lost nearly $60 million in the first six months of last year and carried a heavy debt load June 30. The next month, CPS inked a deal with OCI Solar that calls for Nexolon to build a $100 million solar-panel manufacturing facility somewhere in the 1,500-square-mile CPS service area.

To lure Nexolon to Brooks, the city offered a package of incentives to the startup that's either crafty or crazy, depending on who's talking.

The incentives, approved last month by a majority of council members, include a 10-year tax abatement, a $400,000 grant and $500,000 in fee waivers from the San Antonio Water System. But the city's North Side council members — Elisa Chan, Reed Williams and Carlton Soules — took exception to an agreement to lease 86 acres worth $17 million to Nexolon for just $5 million.

The city has pledged to plunk the remaining $12 million into infrastructure at Brooks surrounding the site. Nexolon could take ownership of the land at any time in the next decade, although this would require it to start paying taxes.

In a newsletter this week to residents, Chan wrote, “We all hope that Nexolon will do well and flourish, but should it go under, it will continue to own the 86-acre tract of land that can be sold ... at a high price in the future.”

“That is just a weird deal,” Chan told me. “That land is going to be worth more than $17 million in the future. And Nexolon, at the end of the day, they can just sell it. That's a crazy deal.”

Rene Dominguez, director of the city's economic development department, explained what would happen if Nexolon fails.

For one, the city would stop abating its taxes and file a lien to recoup any losses. And the grant is tied to job creation: Nexolon has promised to bring 400 jobs.

“We don't pay unless they reach milestones,” Dominguez said.

As for the $12 million discount on the property, Chan and company were astute to pounce: It's the weakest part of the deal. An optimist would consider it a leveraged incentive. If Nexolon fails, Brooks would still reap an investment in its infrastructure.

That's at the heart of what's spurring controversy over the deal: the city's insistence that Nexolon build at Brooks.

“Are we doing a little more because it's a South Side investment? Sure,” Castro said Wednesday. “We want to create momentum there in a traditionally economically depressed area.”

He called Nexolon's financial problems “a concern” but said he still believes in the deal.

Another sort of incentive could wind up protecting not only taxpayers, but also an ambitious mayor invested politically in a new-energy economy. After all, hovering above the fracas at Brooks is CPS' power-purchase agreement with OCI, which must deliver the megawatts to get paid.

“That may be the ultimate ace that we have,” Castro said. “They have the incentive to make sure this is successful.”